Vital Signs #56: Crowdfunding is Eating the World

 

Crowdfunding

Consider the Current and Future Impact of Crowdfunding:

  • Reg D filings accounted for over $1.0 trillion in capital raised in 2011, an increase of over 35% from 2010
  • Existing Crowdfunding portals demonstrate investor interest in start-up funding: Kickstarter> $359 million funding for 78,000 projects; Lending Club> $1,000 million funding for 80,000 projects
  • Angel Investors funded 35,509 companies

Stating Crowdfunding is "Eating the World" may be an understatement. Increasingly, investors are Crowdfunding to improve deal flow ("Access"), simplify and speed up the investment process (ePlatforms), and lower costs of entry via a direct investment model (eliminate "2 and 20" management/carry fees).

Correspondingly, Crowdfunding start-ups are rushing in to provide investors with access to this direct investment model including CircleUp and FundersClub, both of whom raised large amounts of institutional financing recently. Industry observers may want to contemplate why institutional investors are supporting this burgeoning industry. Take a simple revenue model using 2012 calendar year metrics:

  • 37,000 Reg D offerings filed in 2012 with a median raise of $1 million
  • 500,000 entrepreneurial start-ups launched with over $20 billion going to 10% of these companies by Venture Capitalists and Angels (balance funded by Friends and Family/Self-Funded)
  • Capture 1% of startup’s (5,000) seeking funds via Crowdfunding at average raises of $175,000 and raise $875 million
  • At the low side, charging a 5% success fee creates $47.5 million in revenues annually for a Portal

To download SJA's White Paper, How Crowdfunding will be as disruptive as iTunes, please click on the link, http://hub.am/17uZfnZ

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